upgradinginglobalvaluechains:...

World Development Vol. 33, No. 4, pp. 549–573, 2005� 2005 Elsevier Ltd. All rights reserved

Printed in Great Britain
0305-750X/$ - see front matter
doi:10.1016/j.worlddev.2005.01.002www.elsevier.com/locate/worlddev

Upgrading in Global Value Chains:

Lessons from Latin American Clusters

ELISA GIULIANIUniversity of Sussex, UK

CARLO PIETROBELLIUniversity of Rome III, Italy

and

ROBERTA RABELLOTTI *

University of Piemonte Orientale, Italy

* This p

on ‘‘Clu

carried

Micro a

Develop

opment

Rabellot

thors wh

sions. T

Pablo A

Juan Jo

Sanjaya

Rasiah,

Giovann

provided

the stud

Summary. — It has been shown that clustering helps local enterprises in industrial districts over-come growth constraints and compete in distant markets in advanced and less developed countries.Nevertheless, recent contributions have stressed that more attention needs to be paid to externallinkages and to the role played by global buyers to foster upgrading at cluster levels. In this study,we contribute to this debate focusing on the analysis of the relationships existing between cluster-ing, global value chains, upgrading, and sectoral patterns of innovation in Latin America. We findthat sectoral specificities matter and influence the mode and the extent of upgrading in clusters inte-grated in global value chains.
� 2005 Elsevier Ltd. All rights reserved.
Key words — Latin America, small enterprise, industrial policy, clusters, global value chain, in-

novation

aper draws on the empirical findings of a project

sters, Value Chains, and Competitiveness,’’

out for AGORA’2000, Italy, on behalf of the

nd SME Division, Department of Sustainable

ment (SDS/MSM) of the Inter American Devel-

Bank (IDB), and directed by Pietrobelli and

ti. The paper reflects the opinions of the au-

o bear full responsibility for errors and omis-

he authors wish to thank Manuel Albaladejo,

ngelelli, Alessandro Bolondi, Claudio Cortellese,

se Llisterri, Carlos Guaipatin, Chris Freeman,

Lall, Carlo Manfredi, Jorg Meyer-Stamer, Rajah

Frederic Richard, Andres Rodrıguez-Clare,

i Stumpo, and four anonymous referees, who

comments and support at various stages of

y. We are also grateful to Alessia Amighini,

Ner Artola, Jose Cassiolato, Domenico Cersosimo,

Raquel Gomes, Helena Lastres, Claudio Maggi, Davide

Parrilli, Clemente Ruiz Duran, Gianfranco Viesti, Arl-

indo Villaschi, and Eduardo Zepeda, who were part of

the international team of research. Drafts of the paper

were presented at Conferences at the Universities of

Modena, Novara, and Bocconi in Italy, the Univer-

sidade Federal de Espirito Santo, in Victoria, Brazil,

and the Universidad Nacional de General Sarmiento in

Buenos Aires; at the IDB in Washington, DC, and

Buenos Aires; at IBERPYME in Guadalajara; at an

ECLAC-UAM workshop in the DF, Mexico; and at

DTI in Pretoria, South Africa. Financing from the IDB

and the Italian Ministry of Economy is gratefully ack-

nowledged. AndrewMartin Garvey patiently revised our

paper. Final revision accepted: September 30, 2004.

549

550 WORLD DEVELOPMENT

1. INTRODUCTION

The aim of this paper is to explore howsmall- and medium-sized Latin Americanenterprises (SMEs) may participate in globalmarkets in a way that provides for sustainablegrowth. This may be defined as the ‘‘highroad’’ to competitiveness, contrasting withthe ‘‘low road,’’ typical of firms from develop-ing countries, which often compete by squeez-ing wages and profit margins rather than byimproving productivity, wages, and profits.The key difference between the high and thelow road to competitiveness is often explainedby the different capabilities of firms to ‘‘up-grade.’’ In this paper, upgrading refers to thecapacity of a firm to innovate to increase thevalue added of its products and processes(Humphrey & Schmitz, 2002a; Kaplinsky &Readman, 2001; Porter, 1990).Capitalizing on one of the most productive

areas of the recent literature on SMEs, we re-strict our field of research to small enterpriseslocated in clusters. There is now a wealth ofempirical evidence (Humphrey, 1995; Nadvi &Schmitz, 1999; Rabellotti, 1997) showing thatsmall firms in clusters, both in developed anddeveloping countries, are able to overcomesome of the major constraints they usually face:lack of specialized skills, difficult access to tech-nology, inputs, market, information, credit,and external services.Nevertheless, the literature on clusters,

mainly focused on the local sources of compet-itiveness coming from intracluster vertical andhorizontal relationships generating ‘‘collectiveefficiency’’ (Schmitz, 1995), has often neglectedthe increasing importance of external linkages.Due to recent changes in production systems,distribution channels, and financial markets,and to the spread of information technologies,enterprises and clusters are increasingly inte-grated in value chains that often operate acrossmany different countries. The literature on glo-bal value chains (GVCs) (Gereffi, 1999; Gereffi& Kaplinsky, 2001) calls attention to theopportunities for local producers to learn fromthe global leaders of the chains that may bebuyers or producers. The internal governanceof the value chain has an important effect onthe scope of local firms’ upgrading (Humphrey& Schmitz, 2000).Indeed, extensive evidence on Latin America

reveals that both the local and the globaldimensions matter, and firms often participatein clusters as well as in value chains (Pietrobelli

& Rabellotti, 2004). Both forms of organizationoffer opportunities to foster competitiveness vialearning and upgrading. However, they alsohave remarkable drawbacks, as, for instance,upgrading may be limited in some forms ofvalue chains, and clusters with little developedexternal economies and joint actions may haveno influence on competitiveness.Moreover, both strands of literature were

conceived and developed to overcome the sec-toral dimension in the analysis of industrialorganization and dynamism. On the one hand,studies on clusters, focusing on agglomerationsof firms specializing in different stages of the fil-iere, moved beyond the traditional units ofanalysis of industrial economics: the firm andthe sector. On the other hand, according tothe value chain literature, firms from differentsectors may all participate in the same valuechain (Gereffi, 1994). Nevertheless, SMEs lo-cated in clusters and involved in value chains,may undertake a process of upgrading in orderto increase and improve their participation inthe global economy, especially as the industrialsector plays a role and affects the upgradingprospects of SMEs.The contribution this paper makes is by tak-

ing into account all of these dimensions to-gether. Thus, within this general theoreticalbackground, this study aims to investigate thehypothesis that enterprise upgrading is simulta-neously affected by firm-specific efforts and ac-tions, and by the environment in which firmsoperate. The latter is crucially shaped by threecharacteristics: (i) the collective efficiency ofthe cluster in which SMEs operate, (ii) the pat-tern of governance of the value chain in whichSMEs participate, and (iii) the peculiar featuresthat characterize learning and innovation pat-terns in specific sectors.The structure of the paper is the following: in

Section 2, we briefly review the concepts ofclustering and value chains, and focus on theiroverlaps and complementarities. Section 3 firstdiscusses the notion of SMEs’ upgrading andthen introduces a categorization of groups ofsectors, based on the notions underlying thePavitt taxonomy, and applied to the presenteconomic reality of Latin America. Section 4reports the original empirical evidence on alarge sample of Latin American clusters, andshows that the sectoral dimension matters toexplain why clustering and participating in glo-bal value chains offer different opportunities forupgrading in different groups of sectors. Sec-tion 5 summarizes and concludes.

UPGRADING IN GLOBAL VALUE CHAINS 551

2. CLUSTERS AND VALUE CHAINS

During the last two decades, the successfulperformance of industrial districts in the devel-oped world, particularly in Italy, has stimulatednew attention to the potential offered by thisform of industrial organization for firms ofdeveloping countries. The capability of clus-tered firms to be economically viable and growhas attracted a great deal of interest in develop-ment studies. 1

In developing countries, the sectoral andgeographical concentration of SMEs is rathercommon, and a wide range of cases has sincebeen reported. 2 Obviously, the existence of acritical mass of specialized and agglomeratedactivities, in a number of cases with histori-cally strong roots, does not necessarily implythat these clusters share all the stylized factswhich identify the Marshall type of district,as firstly defined by Becattini (1987). 3 None-theless, clustering may be considered as amajor facilitating factor for a number of subse-quent developments (which may or may notoccur): division and specialization of labor,the emergence of a wide network of suppliers,the appearance of agents who sell to distantnational and international markets, the emer-gence of specialized producer services, thematerialization of a pool of specialized andskilled workers, and the formation of businessassociations.To capture the positive impacts of these fac-

tors on the competitiveness of firms located inclusters, Schmitz (1995) introduced the conceptof ‘‘collective efficiency’’ (CE) defined as thecompetitive advantage derived from local exter-nal economies and joint action. The conceptof external economies 4 was first introducedby Marshall in his Principles of Economics(1920). According to Schmitz (1999a), inciden-tal external economies (EE) are of importancein explaining the competitiveness of industrialclusters, but there is also a deliberate force atwork: consciously pursued joint action (JA).Such joint action can be within vertical or hor-izontal linkages. 5

The combination of both incidental externaleconomies and the effects of active cooperationdefines the degree of collective efficiency of acluster and, dynamically, its potential for fos-tering SMEs’ upgrading. Both dimensions arecrucial: Only incidental, passive external econo-mies may not suffice without joint actions, andthe latter hardly develop in the absence ofexternal economies. Thus, our focus is on the

role of intracluster vertical and horizontal rela-tionships generating collective efficiency.However, recent changes in production sys-

tems, distribution channels and financial mar-kets, accelerated by the globalization ofproduct markets and the spread of informationtechnologies, suggest that more attention needsto be paid to external linkages. 6 Gereffi’s glo-bal value chain approach (Gereffi, 1999) helpsus to take into account activities taking placeoutside the cluster and, in particular, to under-stand the strategic role of the relationships withkey external actors.From an analytical point of view, the value

chain perspective is useful because (Kaplinsky,2001; Wood, 2001) the focus moves from man-ufacturing only to the other activities involvedin the supply of goods and services, includingdistribution and marketing. All these activitiescontribute to add value. Moreover, the abilityto identify the activities providing higher re-turns along the value chain is key to under-standing the global appropriation of thereturns to production.Value chain research focuses on the nature of

the relationships among the various actors in-volved in the chain, and on their implicationsfor development (Humphrey & Schmitz,2002b). To study these relationships, the con-cept of ‘‘governance’’ is central to the analysis.At any point in the chain, some degree of

governance or coordination is required in orderto take decisions not only on ‘‘what’’ should be,or ‘‘how’’ something should be, produced butsometimes also ‘‘when,’’ ‘‘how much,’’ andeven ‘‘at what price.’’ Coordination may occurthrough arm’s-length market relations or non-market relationships. In the latter case, follow-ing Humphrey and Schmitz (2000), wedistinguish three possible types of governance:(a) network implying cooperation between firmsof more or less equal power which share theircompetencies within the chain; (b) quasi-hierar-chy involving relationships between legallyindependent firms in which one is subordinatedto the other, with a leader in the chain definingthe rules to which the rest of the actors have tocomply; and (c) hierarchy when a firm is ownedby an external firm.Also stressed is the role played by GVC lead-

ers, particularly by the buyers, in transferringknowledge along the chains. For small firmsin less developed countries (LDCs), participa-tion in value chains is a way to obtain informa-tion on the need and mode to gain access toglobal markets. Yet, although this information


has high value for local SMEs, the role playedby the leaders of GVCs in fostering and sup-porting the SMEs’ upgrading process is lessclear. Gereffi (1999), mainly focusing on EastAsia, assumes a rather optimistic view, empha-sizing the role of the leaders that almost auto-matically promote process, product, andfunctional upgrading among small local pro-ducers. Pietrobelli and Rabellotti (2004) presenta more differentiated picture for Latin America.In line with the present approach, Humphrey

and Schmitz (2000) discuss the prospects ofupgrading with respect to the pattern of valuechain governance. They conclude that insertionin a quasi-hierarchical chain offers very favor-able conditions for process and productupgrading, but hinders functional upgrading.Networks offer ideal upgrading conditions,but they are the least likely to occur for devel-oping country producers. In addition, a moredynamic approach suggests that chain gover-nance is not given forever and may change be-cause (Humphrey & Schmitz, 2002b): (a) powerrelationships may evolve when existing produc-ers, or their spinoffs, acquire new capabilities;(b) establishing and maintaining quasi-hierar-chical governance is costly for the lead firmand leads to inflexibility because of transactionspecific investments; and (c) firms and clustersoften do not operate only in one chain butsimultaneously in several types of chains, andthey may apply competencies learned in onechain to supply other chains.In sum, both modes of organizing produc-

tion, that is, the cluster and the value chain, of-fer interesting opportunities for the upgradingand modernization of local firms, and are notmutually exclusive alternatives. However, in or-der to assess their potential contribution to lo-cal SMEs’ innovation and upgrading, we needto understand their organization of interfirmlinkages and their internal governance. Fur-thermore, as we explain in the following sec-tion, the nature of their dominantspecialization also plays a role and affectsSMEs’ upgrading prospects.

3. THE SECTORAL DIMENSION OFSMEs’ UPGRADING

(a) The concept of upgrading

The concept of upgrading—making betterproducts, making them more efficiently, or mov-ing into more skilled activities—has often been

used in studies on competitiveness (Kaplinsky,2001; Porter, 1990), and is relevant here.Following this approach, upgrading is deci-

sively related to innovation. Here we defineupgrading as innovating to increase valueadded. 7 Enterprises achieve this in variousways, such as, for example, by entering higherunit value market niches or new sectors, or byundertaking new productive (or service) func-tions. The concept of upgrading may be effec-tively described for enterprises working withina value chain, where four types of upgradingare singled out (Humphrey & Schmitz, 2000):

—Process upgrading is transforming inputsinto outputs more efficiently by reorganizingthe production system or introducing supe-rior technology (e.g., footwear producers inthe Sinos Valley; Schmitz, 1999b).—Product upgrading is moving into moresophisticated product lines in terms ofincreased unit values (e.g., the apparel com-modity chain in Asia upgrading from dis-count chains to department stores; Gereffi,1999).—Functional upgrading is acquiring new,superior functions in the chain, such asdesign or marketing or abandoning existinglow-value added functions to focus onhigher value added activities (e.g., Torreon’sblue jeans industry upgrading from maquilato ‘‘full-package’’ manufacturing; Bair &Gereffi, 2001).—Intersectoral upgrading is applying thecompetence acquired in a particular functionto move into a new sector. For instance, inTaiwan, competence in producing TVs wasused to make monitors and then to moveinto the computer sector (Guerrieri & Pie-trobelli, 2004; Humphrey & Schmitz,2002b). In sum, upgrading within a valuechain implies going up on the value ladder,moving away from activities in which com-petition is of the ‘‘low road’’ type and entrybarriers are low.

Our focus on upgrading requires moving a stepforward and away from Ricardo’s static con-cept of ‘‘Comparative Advantage’’ (CA). WhileCA registers ex-post gaps in relative productiv-ity which determine international trade flows,success in firm-level upgrading enables the dy-namic acquisition of competitiveness in newmarket niches, sectors or phases of the produc-tive chain (Lall, 2001; Pietrobelli, 1997). Insum, the logic goes from innovation, to upgrad-ing, to the acquisition of firm-level competitive-ness (i.e., competitive advantage). 8


In this paper, we argue that the concept ofcompetitive advantage increasingly matters. Inthe theory of comparative advantage, what mat-ters is relative productivity, determining differ-ent patterns of interindustry specialization.Within such a theoretical approach, with per-fectly competitive markets, firms need to targetonly production efficiency. In fact, this is notenough, and competitive advantage is the rele-vant concept to analyze SMEs’ performancebecause of (i) the existence of forms of imper-fect competition in domestic and internationalmarkets and (ii) the presence of different de-grees of (dynamic) externalities in different sub-sectors and stages of the value chain.More specifically, in nonperfectly competitive

market rents and niches of ‘‘extra-normal’’profits often emerge, and this explains the ef-forts to enter selectively specific segmentsrather than simply focusing on efficiencyimprovements, regardless of the prevailing pro-ductive specialization (as advocated by the the-ory of CA). Moreover, different stages in thevalue chain offer different scope for dynamicexternalities. Thus, for example, in traditionalmanufacturing, the stages of design, productinnovation, marketing, and distribution mayall foster competitiveness increases in relatedactivities and sectors. The advantage of func-tional upgrading is in reducing the fragilityand vulnerability of an enterprise’s productivespecialization. Competition from new en-trants—i.e., firms from developing countrieswith lower production costs, crowding outincumbents—is stronger in the manufacturingphases of the value chain than in other moreknowledge and organization-intensive phases(e.g., product design and innovation, chainmanagement, distribution and retail, etc.).Therefore, functional upgrading may bringabout more enduring and solid competitive-ness.For all these reasons, the concept of produc-

tion efficiency is encompassed within the broaderconcept of competitiveness, and the efforts toupgrade functionally and intersectorally (andthe policies to support these processes) are jus-tified to reap larger rents and externalitiesemerging in specific stages of the value chain,market niches, or sectors.An additional element that crucially affects

the upgrading prospects of firms and clustersis the sectoral dimension. Insofar as we have de-fined upgrading as innovating to increase valueadded, then all the factors influencing innova-tion acquire a new relevance. This dimension

is often overlooked in studies on clusters, per-haps due to the fact that most of these studiesare not comparative but rather detailed intrain-dustry case studies.In order to take into account such a sectoral

dimension, and the effect this may have on thefirms’ pattern of innovation and learning, weneed to introduce the concept of ‘‘tacit knowl-edge.’’ This notion was first introduced by Pola-nyi (1967) and then discussed in the context ofevolutionary economics by Nelson and Winter(1982). It refers to the evidence that some as-pects of technological knowledge are well artic-ulated, written down in manuals and papers,and taught. Others are largely tacit, mainlylearned through practice and practical exam-ples. In essence, this is knowledge which canbe freely used by its owners, but that cannotbe easily expressed and communicated to any-one else.The tacit component of technological knowl-

edge makes its transfer and application costlyand difficult. As a result, the mastery of a tech-nology may require an organization to be activein the earlier stages of its development, and aclose and continuous interaction between theuser and the producer—or transfer—of suchknowledge. Interfirm relationships are espe-cially needed in this context. Tacit knowledgeis an essential dimension to define a usefulgrouping of economic activities.

(b) Sectoral specificities in upgradingand innovation: a classification for

Latin American countries

The impact of collective efficiency and pat-terns of governance on the capacity of SMEsto upgrade may differ across sectors. This claimis based upon the consideration that sectoralgroups differ in terms of technological complex-ity and in the modes and sources of innovationand upgrading. 9 As shown by innovation stud-ies, in some sectors, vertical relations with sup-pliers of inputs may be particularly importantsources of product and process upgrading (asin the case of textiles and the most traditionalmanufacturing), while in other sectors, technol-ogy users, organizations such as universities orthe firms themselves (as, for example, with soft-ware or agroindustrial products) may providemajor stimuli for technical change (Pavitt,1984; Von Hippel, 1987).Consistently with this approach, the proper-

ties of firm knowledge bases across differentsectors (Malerba & Orsenigo, 1993) 10 may


affect the strategic relevance of collective effi-ciency for the processes of upgrading in clus-ters. Thus, for example, in traditionalmanufacturing sectors, technology has impor-tant tacit and idiosyncratic elements, and there-fore, upgrading strongly depends on theintensity of technological externalities andcooperation among local actors (e.g., firms, re-search centers, and technology and quality dif-fusion centers), in other words, upgradingdepends on the degree of collective efficiency.While in other groups (e.g., complex productsor large natural resource-based firms) technol-ogy is more codified and the access to externalsources of knowledge such as transnational cor-porations (TNCs), or research laboratories lo-cated in developed countries become morecritical for upgrading.Furthermore, the differences across sectoral

groups raise questions on the role of globalbuyers in fostering (or hindering) the upgradingin different clusters. Thus, for example, globalbuyers may be more involved and interestedin their providers’ upgrading if the technologyrequired is mainly tacit and requires intenseinteraction. Moreover, in traditional manufac-turing industries, characterized by a low degreeof technological complexity, firms are likely tobe included in GVCs even if they have verylow technological capabilities. Therefore, tightsupervision and direct support become neces-sary conditions for global buyers who rely onthe competencies of their local suppliers andwant to reduce the risk of noncompliance(Humphrey & Schmitz, 2002b). The situationis at the opposite extreme in the case of com-plex products, where technology is often thor-oughly codified and the technologicalcomplexity requires that firms have alreadyinternal technological capabilities to be subcon-tracted, otherwise large buyers would not con-tract them at all.In order to take into account the above-men-

tioned hypotheses, we develop a sectoral classi-fication, adapting existing taxonomies to theLatin American case. 11 On the basis of Pavitt’sseminal work (1984), we consider that in LatinAmerica, in-house R&D activities are very lowboth in domestic and foreign firms (Archibugi& Pietrobelli, 2003), domestic intersectorallinkages have been displaced by trade liberal-ization (Cimoli & Katz, 2002), and university–industry linkages appear to be still relativelyweak (Arocena & Sutz, 2001). 12 Furthermore,in the past 10 years, Latin America has deep-ened its productive specialization in resource-

based sectors and has weakened its position inmore engineering intensive industries (Katz,2001), reflecting its rich endowment of naturalresources, relatively more than human andtechnical resources (Wood & Berge, 1997).Hence, we retain Pavitt’s key notions and iden-tify four main sectoral groups for Latin Amer-ica on the basis of the way learning andupgrading occur, and on the related industrialorganization that most frequently prevails. 13

The categories are as follows:1. Traditional manufacturing, mainly labor-intensive and ‘‘traditional’’ technologyindustries such as textiles, footwear, tiles,and furniture;2. Natural resource-based sectors (NR-based), implying the direct exploitation ofnatural resources, for example, copper, mar-ble, fruit, etc.;3. Complex products industries (COPs),including, among others, automobiles, auto-components and aircraft industries, ICT andconsumer electronics;4. Specialized suppliers, in our LA cases,essentially software.

Each of these categories tends to have a pre-dominant learning and innovating behavior,in terms of main sources of technical change,dependence on basic or applied research, modesof in-house innovation (e.g., ‘‘routinized’’ ver-sus large R&D laboratories), tacitness or codi-fied nature of knowledge, scale and relevance ofR&D activity, and appropriability of innova-tion (Table 1).Traditional manufacturing and resource-based

sectors are by far the most present in LatinAmerica, and therefore especially relevant toour present aims of assessing SMEs’ potentialfor upgrading within clusters and value chains.Traditional manufacturing is defined as sup-plier dominated, because major process innova-tions are introduced by producers of inputs(e.g., machinery, materials, etc.). Indeed, firmshave room to upgrade their products (and pro-cesses) by developing or imitating new prod-ucts’ designs, often interacting with largebuyers that increasingly play a role in shapingthe design of final products and hence the spec-ificities of the process of production (times,quality standards, and costs).Natural resource-based sectors crucially rely

on the advancement of basic and applied sci-ence, which, due to low appropriability condi-tions, is most often undertaken by publicresearch institutes, possibly in connection withproducers (farmers, breeders, etc.). 14 In these

Table 1. Patterns of learning and innovation in different sectoral groups in LA

Groups Industries Learning patterns Description

1. Traditional

manufacturing

Textiles and

apparel,

footwear,

furniture, tiles

Mainly supplier

driven

—Most new techniques originate from machinery

and chemical industries

—Opportunity for technological accumulation are

focused on improvements and modifications in

production methods and associated inputs, and on

product design

—Most technology is transferred internationally,

embodied in capital goods

—Low appropriability, low entry barriers

2. Natural

resource-

based

Sugar, tobacco,

wine, fruit, milk,

mining industry

Supplier driven,

science based

—Importance of basic and applied research led by

public research institutes due to low appropriability

of knowledge

—Innovation is also spurred by suppliers (machinery,

seeds, chemicals, etc.)

—Increasing importance of international sanitary and

quality standards, and of patents

—Low appropriability of knowledge, but high for

input suppliers

3. Complex

products

Automobile and

auto components,

aircraft, consumer

electronics

Scale intensive

firms

—Technological accumulation is generated by the

design, building and operation of complex production

systems or products

—In-house R&D is critical for innovation

—Process and Product technologies develop

incrementally

—In consumer electronics, technological accumu-

lation emerges mainly from corporate R&D

laboratories and university skills

—Appropriability is medium, high entry barriers

4. Specialized

suppliers

Software Specialized

suppliers

—Important user-producer interactions. Learning

from advanced users

—Low barriers to entry and low appropriability

—High in-house R&D for development of edge

technologies

Source: Adapted from Pavitt (1984), Bell and Pavitt (1993), and Malerba (2000).


sectors, applied research is mainly carried outby input suppliers (i.e., chemicals, machinery,etc.) which achieve economies of scale andappropriate the results of their researchthrough patents.Complex products are defined as ‘‘high cost,

engineering-intensive products, subsystems, orconstructs supplied by a unit of production’’(Hobday, 1998), 15 where the local network isnormally anchored to one ‘‘assembler,’’ whichoperates as a leading firm characterized by highdesign and technological capabilities. To ouraims, the relationships of local suppliers withthese ‘‘anchors’’ may be crucial to foster (orhinder) firms’ upgrading through technologyand skill transfers (or the lack of them).Scale-intensive firms typically lead complex

product sectors (Bell & Pavitt, 1993), wherethe process of technical change is realized withinan architectural set (Henderson & Clark, 1990),and it is often incremental and modular.Among the Specialized Suppliers, we only

consider software, which is typically client dri-ven. This is an especially promising sector fordeveloping countries’ SMEs, due to the lowtransport and physical capital costs and thehigh information intensity of the sector, whichmoderates the importance of proximity to finalmarkets and extends the scope for a deeperinternational division of labor. Moreover, thedisintegration of some productive cycles, suchas for example of telecommunications, opensup new market niches with low entry barriers(Torrisi, 2003). However, at the same time,


the proximity of the market and of clients maycrucially improve the development of designcapabilities and thereby foster product/processupgrading. Thus, powerful pressures for clus-tering and globalization coexist in this sector.The different learning patterns across these

four groups of activities are expected to affectthe process of upgrading of clusters in valuechains. This paper also aims at analyzing withoriginal empirical evidence whether—andhow—the sectoral dimension influences thisprocess in Latin America.

4. METHODOLOGY: COLLECTIONAND ANALYSIS OF DATA

This study is based on the collection of origi-nal data from 12 clusters in Latin America thathave not hitherto been investigated, and on anextensive review of cluster studies available.The empirical analysis was carried out fromSeptember 2002 to June 2003 with the supportof the InterAmerican Development Bank. Aninternational team of 12 experts in Italy andin four LA countries collected and reviewedthe empirical data.Desk and field studies were undertaken fol-

lowing the same methodology, which involvedfield interviews with local firms, institutions,and observers, interviews with foreign buyersand TNCs involved in the local cluster, and sec-ondary sources such as publications and re-ports. 16 Case studies were selected whichfulfilled the following conditions: (1) agglomer-ation: all cases show some degree of geograph-ical SME clustering; 17 (2) upgrading: theclusters selected have experienced some degreeof upgrading, of whatever nature (i.e., product,process, functional, intersectoral); and (3) pol-icy lessons: all cases offer relevant policy lessonsfor future experiences either in terms of suc-cesses or failures.A total of 40 case studies were selected for

this analysis. 18 The list of cases, albeit incom-plete, is—to our knowledge—the largest avail-able on which comparative exercises havebeen carried out, and provides a good approx-imation to the reality of clusters and valuechains in LA. Thus, although it cannot claimto correspond to the universe of clusters inthe region, it represents a database that allowsreasonable generalizations.The analysis consists of a systematic attempt

to quantify on Likert scales, for each of theclusters investigated, the dimensions to be ana-

lyzed: the degree of collective efficiency and lev-els of upgrading. Cluster studies have also beencategorized according to the governance pat-tern of the value chain to which they are con-nected.To quantify the degree of collective efficiency,

a careful evaluation of CE main components—external economies and joint action—has beencarried out. Hence, a value ranging from absent(0) to high (3) was attributed to the followingcomponents: specialized labor market, localavailability of inputs, easy access to informa-tion, and market access for external economies;backward and forward vertical linkages, hori-zontal bilateral and multilateral linkages forjoint action. 19 The same was done with refer-ence to product, process, functional, and inter-sectoral upgrading: a value ranging from absent(0) to high (3) was attributed to each of thesetypes of upgrading. The values were determinedduring either the original field studies, or, in thecases reviewed from the context and from thespecific wording of papers. Finally, we identi-fied the number and mode of governance (mar-ket, network, quasi-hierarchy, and hierarchy)of the value chains into which the clusters feed.Whenever the evidence was derived from

other published sources, we carefully analyzedthe wording of each paper with the collabo-ration of the team of experts, and tried tominimize the occurrence of bias and misinter-pretations complementing and crossreferencinginformation in all possible ways, and testing itwith interviews with key informants and localexperts. Nevertheless, as with any study of thiskind, there may be potential problems on theaccuracy of the results, which will therefore callfor cautious interpretations.The empirical analysis is inevitably affected

by some limitations, due to the lack of reliabledata: even when updated firm-level statistics areavailable, which seldom happens in developingcountries, they are usually available at the na-tional or local level, but they are never gatheredat the cluster level nor do they take into ac-count the relationships within the same valuechain. Therefore, the empirical analysis has torely on the available quantitative evidence com-plemented by careful qualitative assessments.Given its qualitative content, the aim of thisstudy is not to identify causal relationshipsbut rather to explore the hypotheses presentedabove with rich, newly gathered empirical evi-dence on Latin American clustered SMEs.The next section presents a synthesis of the

main results. Fuller details and analyses of


additional complementary issues are addressedin a longer study, where summarized descrip-tions of the case studies undertaken in the pro-ject are included (Pietrobelli & Rabellotti,2004).

5. SECTORAL PATTERNSOF UPGRADING:

EMPIRICAL EVIDENCE

(a) Collective efficiency and sectors

The empirical evidence suggests that the de-gree of collective efficiency attained in the clus-ters analyzed vary across the four sectoralgroups (Table 2). More specifically, it reacheshigher levels in NR-based and software clusters.Instead, clusters in COPs record lower levels ofcollective efficiency, especially due to the veryfew joint actions undertaken. All clusters sharethe advantages of a local labor market, beinga byproduct of geographical clustering. Inputsare also locally sourced, except for COPs, wherethe logic of global sourcing prevails.In traditional manufacturing, clusters show a

medium degree of collective efficiency with thetwo footwear clusters of Sinos Valley andLeon clearly ahead of the others. In very fewclusters, among them Chipilo and Torreon inMexico (Bair & Gereffi, 2001; Zepeda, 2003),the degree of collective efficiency can be de-fined as low.In Chipilo, for example, the lack of collective

efficiency may be explained by a combinationof factors: the very recent origin of the clusterand the organizational pattern prevailing, dom-inated by vertical relationships between Segu-sino, the leading local Mexican firm, and itsnetwork of subcontractors (Zepeda, 2003).The predominance of these strong vertical rela-tionships interferes with the development ofexternal economies and, especially, of horizon-

Table 2. Collective efficiency across sectoral g

EE

Traditional manufacturing 7.6

NR-based 8.91

COPs 7.61

Specialized suppliers 9.1

Source: Authors’ database.EE = external economies (average).JA = joint actions (average).Collective Efficiency Index = 0.5 * EE + 0.5 * JA.

tal joint actions. Moreover, the lack of a strongindustrial tradition before the inception of thecluster that was generated by the explicit, inten-tional action of the leading firm furtherhindered the buildup of joint actions and col-lective efficiency. Very similar results are alsoreported in the Torreon blue jeans cluster,where the only significant external economy isthe creation of a specialized local labor marketwhile joint action at the horizontal level is al-most inexistent, due to a generalized distrustamong firms and the absence of an institutionalenvironment conducive to cluster growth (Bair& Gereffi, 2001).The level of CE appears especially weak also

in COPs clusters, such as the electronics andautomotive industries. This probably reflectstheir intrinsic logic of operation and history,as in most cases they were created followingthe initiative of a large TNC (a leader, or anassembler) searching for local providers, oftenindirectly through the working of the first-tiersuppliers, following the leader. In such circum-stances, joint cooperative actions often proveespecially difficult.The number and variety of joint actions

through collective institutions is surprisinglyhigher for specialized suppliers (software) clus-ters. Intense joint action is explained by diffusedspecific policies at the local level, high humancapital intensity, strong personal relationshipslinking small entrepreneurs, sometimes devel-oped in Universities, and deep relationshipswith institutions of research and higher educa-tion. Similar high levels of joint action are re-corded in NR-based clusters, especially amongcollective institutions engaging in basic researchand extension of innovation and technologyand small farmers (Gomes, 2003). In this groupof sectors, the collaboration between privateand public associations and organizations isespecially noteworthy (Maggi, 2003; Vargas,2001a, 2001b).

roups index of collective efficiency: average

JA CE Index

5.23 6.31

7.36 8.2

4.8 6.19

7.8 8.7


(b) Governance and sectors

In light of other works on global valuechains, one would expect the quasi-hierarchyto be the dominating pattern of governance inthe traditional manufacturing group, with buy-ers and manufacturers playing a leading role(Gereffi, 1999). However, according to oursample, the reality is characterized by a greatervariety of forms of organization and gover-nance of the value chains. There is in fact evi-dence that, in some cases, different valuechains coexist in the same cluster, with firmsparticipating in local as well as in global valuechains. The coexistence of different chainshas especially been found in traditional manu-facturing and natural resource-based sectors.Instead, in COPs, there is a prevalence of quasi-hierarchy in GVCs led by TNCs and theirfirst-tier suppliers whereas in the software clus-ters, the relationships with clients are mainly ofa market/network type (Table 3).An interesting example of a cluster operating

simultaneously in different types of chains is theSinos Valley footwear cluster where, besidesthe chain dominated by US and European buy-ers, there are other minor chains oriented tothe Brazilian and the Latin American markets(Bazan & Navas-Aleman, 2004). These differentchains are characterized by various patterns ofgovernance. The US value chain is a typicalquasi-hierarchical chain, dominated by USbuyers, while firms selling into the domesticmarket and exporting to Latin America operateunder market conditions. In the quasi-hierar-chical chain, US buyers impose their conditionsconcerning product design, marketing, andbranding on Brazilian producers. The buyersare the undisputed leaders in the chain, exertingcontrol over intermediaries, local producersand often input suppliers as well. Accordingto Bazan and Navas-Aleman (2004), this asym-metrical relationship with local producers canbe explained by several factors, the most impor-tant being the marked concentration of exportsby a small number of export agents in the USmarket. Moreover, the numerous sourcing op-tions (e.g., China, Spain, and Portugal) opento the buyers, in the unlikely scenario that localproducers did not accept their terms, made thebuyers stronger.Similarly, the two Mexican footwear clusters

of Guadalajara and Leon operate simulta-neously in different chains: in quasi-hierarchicalchains dominated by US buyers and in thedomestic market, sometimes under market con-

ditions and also in a few cases in networkchains. While in the quasi-hierarchical chains,US buyers control design and product develop-ment, in network-governed value chains there iscooperation among firms of more or less equalpower, which share their competencies withinthe chain. This is an increasingly common pat-tern in these clusters, where one of the effects oftrade liberalization has been an increase incooperation between domestic buyers and pro-ducers (Rabellotti, 1999).In the Nicaraguan dairy case (Artola & Par-

rilli, 2003), firms in the cluster participate inthree different types of productive chains: (i)the chain led by a TNC; (ii) the chains headedby the Salvadoran medium-sized processingplants and traders; and (iii) the chain led bysome local small cooperatives. A clear patternof hierarchical governance is evident in the pro-ductive chain led by the TNC and in the chainled by the Salvadoran agents, while a form ofnetwork-like governance prevails in the valuechain led by local cooperatives.

(c) Collective efficiency, global buyers, andupgrading across sectoral groups

The empirical evidence presented so far sug-gests that different sectoral groups tend to showdifferent CE and governance settings. In thisparagraph, we explore whether it is possibleto associate the level of CE and the particularform of chain governance with upgradingacross different sectoral groups. In this respect,our analysis shows that upgrading is achievedin different sectors in considerably differentways.As shown in Table 4, CE does not seem to be

equally related to upgrading in all sectors. Infact, while it is positively associated withupgrading in Traditional Manufacturing, Nat-ural Resource-Based, and Software clusters,the relationship is not significant in COPs. Asfar as governance is concerned, the impact ofglobal leader firms on cluster upgrading is verymixed. It tends to be positive for product andprocess upgrading in Traditional Manufactur-ing and Natural Resource-based clusters, whileit has only a moderate impact on the same typeof upgrading in COPs. Most interestingly, glo-bal buyers show a weak or, in some cases, neg-ative relationship with functional upgrading inall three sectoral groups mentioned above. 20

In the paragraphs that follow, we provide a de-tailed analysis of the findings for each group ofsectors.

Table 3. Value chains: the pattern of GOVERNANCE

Market Network Quasi-hierarchy Hierarchy

Traditional manufacturing clusters

Textiles:

Medellin (Col.) 0 0 1 0

Itaji, Santa Catarina (Br.) 3 0 0 0

Apparel:

Bucaramanga (Col.) 2 0 0 0

Gamarra (Peru) 1 0 0 0

Torreon (Mex.) 0 0 2 0

Shoes:

Sinos Valley (Br.) 3 0 2 0

Leon (Mex.) 1 1 2 0

Guadalajara (Mex.) 1 1 2 0

Campina Grande (Br.) N/A N/A N/A N/A

Furniture:

Serra Gaucha (Br.) 1 0 0 0

Uba, Minas Gerais (Br.) 1 0 0 0

Espirito Santo (Br.) 1 1 0 0

Sao Bento do Sul (Br.) 0 1 2 1

Segusino/Chipilo (Mex.) 3 0 1 0

Tiles: Santa Catarina (Br.) 2 0 0 0

NR-based clusters

Tobacco: Rio Pardo, RGS (Br.) 0 0 2 0

Wine:

Colchagua (Ch) 3 0 2 0

Serra Gaucha, RGS (Br.) 3 0 0 0

Sugar: Valle del Cauca (Co) 3 0 0 0

Marble: ES (Br.) 1 0 2 0

Copper: Cuajone-Toquepala (Pe) 2 0 2 0

Salmon: Region Austral (Ch) 0 2 2 0

Milk-dairy: Boaco,Chontales (Nic) 1 1 2 2

Mangoes and grapes: Petrolina-Juazeiro (Br.) 1 0 3 0

Melons: Rio Grande Norte (Br.) 1 0 3 0

Apples: Santa Catarina (Br.) 1 0 3 0

COPs

Aircraft: SJC Aeronautics, S. Paolo (Br.) 0 0 2 0

Automotive:

Nova Serrana (Br.) 0 0 2 0

Caixa do Sul, RGS, (Br.) 0 2 2 0

Juarez, (Delphi) (Mex.) 2 0 2 0

Metalworking: Espırito Santo (Br.) 0 0 1 0

Electronics: Jalisco (Mex.) 0 0 2 0

Audio-visual equip.: Baja California, (Mex.) 0 0 0 2

Intel ICT: San Jose (Costa Rica) 2 0 0 0

H-T: Campinas, Sao Paulo (Br.) 2 2 2 0

Specialized suppliers (software)

Software:

Joinville (Br.) 1 1 0 0

D.F. (Mex.) 1 1 0 0

Guadalajara (Mex.) 1 1 0 0

Aguascaliente (Mex.) 1 0 0 0

Monterrey (Mex.) 1 1 3 0

Source: Authors’ database.0 = absent; 1 = domestic chain; 2 = global chain; 3 = domestic and global chain.


Table 4. Patterns of learning and upgrading across sectoral groups

Pattern of learning according to

Pavitt taxonomy

Traditional manufacturing Natural resource-based COPs Software

Supplier-driven Supplier-driven,

science based

Scale-intensive-

specialized suppliers

Specialized-suppliers

Relation between collective efficiency and

Product upgrading Positive Positive Neutrala Positive

Process upgrading Neutralb Positive Neutralb Positive

Functional upgrading Neutral Positive Neutralb Positive

The impact of global buyers/leaders operations on

Product upgrading Positive Positivec (but passive) Neutrald Indirectly Positive Nonee

Process upgrading Positive Positivec (but passive) Neutrald Indirectly Positive Nonee

Functional upgrading Often negative Neutral/negative Neutral/negative Nonee

Other critical sources of knowledge Suppliers, local

institutions,

National buyers

alternative

to the global leaders

Suppliers, university and

research laboratories,

technology

extension services, producers’

associations and cooperatives

Consultants, local agencies

(network-brokers)

Users, universities

and higher education

institutions

Source: Authors’ database.a Often little collective efficiency (CE) is detected.b Process innovations in this sector are usually driven by technology suppliers, and in none of the sample clusters is there local production of technology.c Global leaders set the target and provide market outlets, but do not normally engage in supporting initiatives.d Neutral, only indirect impact through the incentive (spur) to enter global value chains and fulfill the standards required. Not attained through the direct support ofbuyers.e None refers to the case in which the global buyer is not present.

560

WORLDDEVELOPMENT


(i) Upgrading in traditional manufacturingIn the clusters belonging to the traditional

manufacturing group, process and productupgrading are often present, although with awide dispersion across the cases; functionalupgrading is only incipient in a few cases, andintersectoral upgrading appears to have almostnever occurred in the clusters analyzed (Table5).An important result is that there appears to

be a positive relationship between productupgrading and the degree of collective efficiencyin this group of industries (Table 5). This posi-tive relationship can be explained by severalfactors: (a) circulation of information, knowl-edge, and labor force which facilitates theupgrading process of clustered firms; (b) prod-uct upgrading is also facilitated by vertical jointaction with local suppliers and with buyers; and(c) multilateral horizontal cooperation plays animportant role in product upgrading throughvarious actions such as participation in interna-tional trade fairs, collection of informationabout international fashion trends, easier con-nections with international buyers.The two Mexican and the Sinos Valley foot-

wear clusters are good examples of the positive

Table 5. Upgrading in traditio

CE degree Product

upgrading

Textile:

Medellin (Col.) Medium 2

Itaji, Santa Catarina (Br.) Medium 3

Apparel:

Bucaramanga (Col.) Medium 1.5

Gamarra (Peru) Medium 1

Torreon (Mex.) Low 1

Shoes:

Sinos Valley (Br.) High 3

Leon (Mex.) High 2

Guadalajara (Mex.) Medium 2

Campina Grande (Br.) Medium 1.5

Furniture:

Serra Gaucha (Br.) Medium 2.5

Uba, Minas Gerais (Br.) Low 1

Espirito Santo (Br.) Medium 1.5

Sao Bento do Sul (Br.) Medium 1

Chipilo (Mex.) Low 2

Tiles: Santa Catarina (Br.) Medium 3

Total 28

Average 1.86

Source: Authors’ database.a3 = high; 2 = medium; 1 = low; 0 = absent.

interaction between collective efficiency andproduct upgrading. Rabellotti (1999) showedhow the efforts to improve the quality and fash-ion content of components undertaken by somemanufacturers together with their suppliershave percolated all over the Guadalajara clus-ter. Moreover, she stresses the importance ofa program undertaken in Leon, aimed at pro-moting the standardization of components forthe product upgrading at the cluster level.In the Sinos Valley, Schmitz (1995) underlinesthe importance of various cluster programsaimed at supporting the participation of localproducers in international trade fairs and atbringing international buyers in the cluster, atan early stage of development.In contrast, on the basis of the available

empirical evidence, it would seem that there isa clear link between collective efficiency andprocess upgrading. This can be explained by acombination of factors. In traditional indus-tries, technology suppliers drive process inno-vations and in none of the clusters analyzed isthere a local production of technology. There-fore, in most Latin American clusters, the virtu-ous and close relationship between technologyproducers and technology users that it is so

nal manufacturing clustersa

Process

upgrading

Functional

upgrading

Intersectoral

upgrading

Sum of

upgrading

2 1 1 6

3 1 0 7

1.5 N/A 0 3

1 0 0 2

3 1 0 5

3 1.5 0 7.5

2 1 0 5

2 1 0 5

1.5 0 0 3

2.5 0 0 5

1.5 0 0 2.5

1.5 1 0 4

2 1 0 4

2 1 0 5

3 1 0 7

31.5 10.5 1

2.1 0.7 0.06 4.73


important to explain process upgrading in Ital-ian industrial districts is missing.Furthermore, in some of the cases analyzed,

process and product upgrading have been facili-tated by international large buyers. This resultconfirms Gereffi’s view that producers enteringa quasi-hierarchical chain have good prospectsfor upgrading their processes and products(1999). Along the same lines, Humphreyand Schmitz (2000) agree that ‘‘local producerslearn a great deal from global buyers about howto improve their production processes, attainconsistency and high quality, and increase theirspeed of response to customer orders.’’The fact that buyers often provide support

for upgrading can be related to the characteris-tics of products, which are not standardized. Inthese industries, on products and processesinformation cannot be easily codified in techni-cal norms and the quality of products dependson the specialized skills of local producers (oralternatively, even though the processes couldbe codified, local firms lack the capability to de-code and use such codes to transform them intoidiosyncratic routines). Relying on the compe-tencies of their local suppliers, global buyersare obliged to assist them in improving prod-ucts and processes, their support being particu-larly crucial in the first stages of new producers’integration into global VCs.This upgrading effect is well documented in

the Sinos Valley, where according to Bazanand Navas-Aleman (2004), a rapid processand product upgrading has been facilitated bythe inclusion in the US VC. A similar effectwas also detected in Leon, Mexico, where, sincethe 1994 devaluation of the Peso, US buyershave also begun to play a very significant rolein upgrading. Again, US buyers have contrib-uted in an important way to process and prod-uct upgrading in the blue-jeans cluster ofTorreon, in Coahuila—Mexico (Bair & Gereffi,2001). In all these cases, integration in globalvalue chains has supported rapid enhancementof product and process capabilities.Moving on to functional upgrading, it has

been documented (Bazan & Navas-Aleman,2004; Humphrey & Schmitz, 2002b; Rabellotti,2004) that although inclusion into GVCs facil-itates product and process upgrading, firms be-come tied into relationships that often preventfunctional upgrading and leave them dependenton a small number of powerful customers. Inthe Sinos Valley, local suppliers were discour-aged from functional upgrading by their mainUS buyers, who did not want to share their

core competencies in design, marketing, andsales with them:

Activities that are highly valuable are design, market-ing, branding, and chain coordination, exactly theones performed by most foreign buyers. [. . .] sincethe acquisition of capabilities to engage in the highervalue added activities requires great investments, Bra-zilians have been feeding into the footwear valuechain mostly as producers and their buyers have beenmore than happy to keep the status quo for as long asis possible. (Bazan & Navas-Aleman, 2004).

If functional upgrading is prevented by buyers’power in quasi-hierarchical chains, it can takeplace more easily in market-based value chains.In these chains, producers experience neithersupport for, nor blockages to upgrading (Hum-phrey & Schmitz, 2000). In the Sinos Valley,functional upgrading in design, branding, andmarketing has been achieved by those firmsselling to buyers in the domestic and regionalmarkets in Latin America. Bazan and Navas-Aleman (2004) explain that in those markets,buyers are smaller and buy ready-designedshoes, often sold with the producers’ brand. Asimilar process of functional upgrading can alsobe detected among the Mexican footwear pro-ducers selling in the domestic market and, insome cases, also in the rest of Latin America(Rabellotti, 1999). In the textile sector, the Bra-zilian cluster of the Valle de Itaji in the state ofSanta Catarina has experienced a similar pro-cess of functional upgrading (Campos, Cario,& Nicolau, 2000).Finally, in Table 5, we may observe a positive

(albeit weak) relationship between functionalupgrading and collective efficiency. Comple-menting this information with the availablequalitative evidence, we can conclude that thisis due to: (a) the circulation of informationand skilled manpower (external economies);and (b) various initiatives such as participationin international trade fairs, collection of infor-mation about fashion trends, training programsfor designers, and collective promotion of localbrands (joint actions).To conclude, in order to functionally up-

grade, firms need to invest in design, branding,and marketing, and given that the funds in-volved are often large, SMEs need to takeadvantage of the ongoing collective initiativesin a cluster to improve their access to informa-tion, know-how, and knowledge about mar-kets. In other words, the degree of collectiveefficiency positively affects the SMEs’ chancesto functionally upgrade.


(ii) Upgrading in natural resource-based clustersIn NR-based clusters, process and product

upgrading are strongly tied to the advancementof science and technology in related industries:i.e., plants and seeds, machinery and tools,chemicals, and pharmaceuticals. New methods,inputs, and machinery are in fact introduced bythe interactive relations between suppliers andresearch laboratories, which carry out themajority of the research activity. In particular,given the high uncertainty and low appropri-ability conditions of knowledge in this sector,public research centers and universities playan important role in the process of upgrading(Pray & Umali-Deininger, 1998).Indeed, SMEs have successfully upgraded in

clusters characterized by public–private initia-tives aimed at supplying research and technol-ogy extension services, such as in the mangoand grape cluster of Petrolina Juazeiro in Bra-zil, where the local San Francisco River ValleyDevelopment Agency (CODEVASF) promoteda sequence of crops that facilitated the learningprocess of small growers. 21 Similarly, in thewine cluster of Serra Gaucha (Vargas, 2001a),the National Center for Research on Grapeand Wine (CNPUV) of EMBRAPA and theJK Agro Technical Federal School, both lo-cated in the city of Bento Goncalves, constitutethe main research and human resources forma-tion centers of the cluster.In Southern Chile, in the early 1980s, the sal-

mon cluster development was fostered by the

Table 6. Upgrading in

Location Degree

of CE

Produ

upgradi

Tobacco Rio Pardo, RGS (Br.) Medium 3

Wine Colchagua (Ch.) Medium 3

Wine Serra Gaucha, RGS (Br.) Medium 3

Sugar Valle del Cauca (Co.) High 3

Marble ES (Br.) Medium 2

Copper Cuajone-Toquepala (Pe.) Low 2

Salmon Region Austral (Ch.) High 3

Milkdairy Boaco,Chontales (Nic.) Medium 2

Mangoes,

grapes

Petrolina-Juazeiro (Br.) High 3

Melons Rio Grande Norte (Br.) Medium 2

Apples Santa Catarina (Br.) High 3

Total 29

Average 2.64


Chile Foundation, which ventured into salmonfarming, which had, until then, been unknownin the region, proving that this activity couldbe profitable. Several private firms and TNCsthen followed this example, initially set up bya public actor (Pietrobelli, 1998). Later, jointactions led by the private sector and supportedby public policies (e.g., a trade market, jointpromotion abroad) paved the way to the fur-ther strengthening and evolution of the cluster.In the late 1990s, R&D funds were then allo-cated through competitive tenders (Maggi,2003).Hence, the presence of mainly public–private

horizontal joint action positively affects prod-uct and process upgrading, achieved throughseveral channels including the local institu-tional network, the public support to local jointactions, research centers, Universities, andinternational cooperation. Useful examples ofcases in this respect are the salmon cluster inChile (Maggi, 2003), the Petrolina Juazeiromango cluster, and the apple cluster in SantaCatarina, in Brazil (Gomes, 2003). These re-sults suggest a positive relation between CEand product and process upgrading, althoughfunctional upgrading is very rare (Table 6).In Natural Resource-Based clusters operat-

ing within buyer-driven chains, foreign buyersfacilitate the link with the international marketby signaling the need and the modes of the nec-essary upgrading. Nevertheless, given that therequirements of the international market are

NR-based clustersa

ct

ng

Process

upgrading

Functional

upgrading

Intersectoral

upgrading

Sum of

upgrading

3 0 0 6

3 0 0 6

3 0 0 6

3 2 1 9

2 0 0 4

2 0 1 5

3 2 2 10

2 2 0 6

3 0 0 6

1 0 0 3

3 0 0 6

28 6 4

2.55 0.55 0.6 6.09


often codified by standards (e.g., HACCP),imposing them on to producers bears few trans-action costs: buyers relay information on thestandards that need to be met, but do not nor-mally support the SMEs’ upgrading process,and select SMEs complying with these stan-dards. An example is that of the fresh fruit clus-ter in Petrolina-Juazeiro reported below(Gomes, 2003):

. . .the greater power of importers and buyers in thesechains has meant mounting pressures for growers tomake the necessary changes in their products andproduction processes to meet the demands of thesebuyers. That is, growers are under greater pressuresto upgrade because they now have fewer buyersand these buyers are more demanding than ever.

And:

. . .the intermediaries in these chains relay marketinformation on to their suppliers, but are less likelyto engage in the actual process of upgrading.

Finally,

. . .in many cases participation in value-chains meansgrowers face greater demands that are passed downto them from their importers, but these demandsare not accompanied by lessons on how to upgrade.

In the Nicaragua milk and dairy cluster,upgrading dynamics has taken very differentforms. The hierarchical value chain led by aTNC has fostered upgrading of products andprocesses, but hindered functional upgrading(Artola & Parrilli, 2003). However, the VCled by the semiindustrial cooperatives has alsoenhanced functional upgrading, together with

Table 7. Upgrading

Main product Location CE

degree

Pro

upg

Aircraft SJC, Sao Paolo, (Br.) Medium

Automotive Nova Serrana (Br.) Medium

Automotive Caixa do Sul, RGS (Br.) Medium

Automotive Juarez, (Delphi) (Mex.) Medium

Metalworking Espırito Santo (Br.) Medium

Electronics Jalisco (Mex.) Low

Audio-visual

equip.

Baja California (Mex.) Low

Intel ICT San Jose (Costa Rica) Low

High Tech. Campinas, S. Paulo (Br.) Medium

Total

Average 2


improvements in products and processes. Theinteresting and promising issue that hasemerged from this study is that value chainsalternative to the quasi-hierarchical one domi-nated by buyers or TNCs, have sometimesfacilitated a smoother and continuous processof learning creating the conditions for firms tofunctionally upgrade over time (Pietrobelli &Rabellotti, 2004). However, global buyers arenot necessarily the optimal solution for upgrad-ing; national chains also offer alternative,promising, and often more sustainable oppor-tunities.

(iii) Upgrading complex productsIn Complex Products (COPs), process (and to

a lower extent product) upgrading is remark-able, but functional upgrading was onlyachieved in a few cases (Table 7).One case of functional upgrading is that of

the Delphi automotive cluster in Juarez, Mex-ico, that has experienced functional upgradingat a local level, due to the development of thedesign and engineering center of Delphi (Car-rillo & Lara, 2004). Local second and third tiersuppliers have started producing higher valueadded products and services, mainly in elec-tronics and informatics (Dutrenit, Vera-Cruz,& Gil, 2002). A similar example is the SJC clus-ter in Sao Paulo, Brazil (Bernardes & Pinho,2002).In all other cases, instead, the predominant

pattern seems to be only product and processupgrading, with a very limited support role ofthe leader firms. In Nova Serrana (Brazil), there

in COP clustersa

duct

rading

Process

upgrading

Functional

upgrading

Intersectoral

upgrading

Sum of

upgrading

2 2 2 0 6

3 3 1 0 7

1.5 2.5 0 0 4

3 3 2 0 8

2 3 0 0 5

2.5 2.5 0 0 5

2.5 2.5 1.5 0 6.5

3 3 1 0 7

2.5 2.5 1 0 6

22 24 8.5 0

.44 2.7 0.94 0.0 6.06


is no new design development locally by the lo-cal subsidiaries. What is done locally is ratherto adapt such a design to local conditions(‘‘tropicalizacao’’) (Lemos, Diniz, Crocco, &Camargo, 2000; Santos, Crocco, & Lemos,2002). In the case of the TV industry in BajaCalifornia (Mexico), upgrading regardspredominantly foreign first tier suppliers(Gerber & Carrillo, 2002). In Costa Rica (In-tel), there has been a very limited upgradingof locally owned firms into more value addedactivities:

With the reorganization of the plant after 1999, theprocess attracts some other suppliers and promoteslocal interaction with the software industry . . . Majorservices are in low-tech low-value added activities,except for some recent software contracts. (Var-gas & Lindegaard, 2002).

Similarly, in the GM and Volkswagen automo-tive cluster in Sao Paulo (Brazil), Quadros(2002) reports that local suppliers improvedthe qualitative standards of production andachieved certification (ISO 9000), but leadingfirms in the Brazilian automotive chain havedispensed little effort to assist suppliers in theadoption of quality standards. Instead, firmsreceived technical support mainly from consul-tancies and accredited certification institutions.Similar evidence is also observed in other cases(e.g., Albornoz, Milesi, & Yoguel, 2002; Dutre-nit et al., 2002).Some evidence also points out that interac-

tions between leader firms and local suppliershave fostered product and process upgrading(e.g., Bernardes & Pinho, 2002; Santos et al.,2002). Nevertheless, according to our evidence,this effect is limited to very few cases, since mar-ket liberalization has produced a displacementof most local first tier suppliers in favor of glo-bal outsourcing strategies by multinationalassemblers.This further suggests that participating in a

value chain offers no direct advantages to up-grade in these industries. Rather, it is the inter-est to operate as suppliers that induces firms totry to keep up with technological advance-ments. In other words, most evidence suggeststhat upgrading is left to the market, which im-plies that firms make an effort to upgradethrough market mechanisms, such as a self-standing basis, contracting consultants, orrecurring to other sources of knowledge avail-able in the market, to improve their capabili-ties. Most of the upgrading effort is not led byor done jointly with the buyer, who merely rep-

resents an external stimuli and spectator to theprocess.An interesting result of this study is also that

collective efficiency does not appear to be re-lated to upgrading in any way in most of theseCOPs clusters. In his study of industrial poli-cies in the plastics and auto sectors in the Re-gional Chamber of ABC, Sao Paulo, Quadros(2002) concludes that technical collaborationfrom customers to achieve certification is lim-ited and rarely systematic, and that assistancehas rather come from private consultants. Cer-tification has not improved collaborationwithin the value chain, as the design of lightcomponents is entirely carried out by custom-ers who provide the suppliers with detailed de-signs. The lack of local coordination isportrayed as:

. . .the difficulties of developing a local policy net-work in a sector with strong global linkages as inthe automotive sector. Firms in the automotive sec-tor demonstrated little interest in participating inthe Chamber’s activities. The sector’s global linkagesand the hierarchical structure of the chain appear toestablish strong relationships between the firms in-volved, leading them to show less of a propensityto participate in other forums aimed at raising com-petitiveness. This type of behavior was to be foundnot just amongst the assemblers but also amongstthe automotive components firms . . . Other firmswithin the plastics sector (particularly small firmscommitted to producing various products aimed ata varied client group and not directly inserted intoany one specific chain) showed a greater propensityto strategies within the Chamber and aimed atincreasing competitiveness by improving collectiveefficiency. (Leite, 2002)

(iv) Upgrading in software clustersIn the case of Specialized Suppliers, our

empirical analysis focuses on software clustersin Brazil andMexico. In all the software clustersstudied, product and process upgrading is gen-erally high. Regarding product upgrading, RuizDuran (2003) presented five different types ofproducts with increasing value added: data pro-cessing; outsourcing (offshore and near shore);‘‘ad hoc’’ software development; developmentof software packages; development of registeredpackages. Some of the oldest enterprises in theMexican clusters analyzed began their activitysupplying data processing services and most ofthem have since been upgraded to ‘‘ad hoc’’ soft-ware packages, and often adapt existing pack-ages to the specific needs of their customers.In these cases, most of the product upgradingconsists of incremental improvements, which


are favored by the existence of network relation-ships with users.Another form of product upgrading, also

increasingly common in Blumenau (Brazil), isthe supply of full systems instead of specific sys-tems for book-keeping, human resource man-agement, etc. With SMEs beginning to adoptERP solutions, the market for full and inte-grated systems has expanded, opening theopportunity to be competitive in these systemsto small software firms (Bercovich & Swanke,2003). Finally, in all the clusters analyzed, thereare a few firms which have been able to evolvefrom producing ‘‘ad hoc’’ solutions to develop-ing standardized systems, which are imple-mented and sold to a large number ofcustomers. A case in point is a small enterpriselocated in Aguascalientes that has developed asoftware for ophthalmologists, translatingother existing packages into Spanish andadapting them to Mexican doctors’ necessities.The software is now exported to other LatinAmerican countries.According to the empirical evidence avail-

able, in all these clusters, the degree of collec-tive efficiency is positively related withproduct upgrading. Most of the entrepreneursinterviewed in Mexico and Brazil consider theexchange of information and the flow of skilledpeople inside the clusters very important deter-minants of their product upgrading. Moreover,the various collective initiatives, undertaken inmost of these clusters, also contribute toenhancing firms’ knowledge, access to informa-tion, and skills.Process upgrading, in the Mexican clusters, is

very strongly related with the process of obtain-ing the Capability Maturity Model (CMM) cer-tification. This is aimed at improving theprocess of software development. This certifica-tion is a very time consuming and expensiveprocess for SMEs, and the various existing col-lective initiatives would probably play a crucialsupporting role. Besides, the linkages betweensoftware firms and local universities alsoimportantly enhance process upgrading.Finally, functional upgrading appears to be

more common in this sector than in others. Inall these clusters, there are examples of firmsmaking efforts to improve their marketingactivity within collective initiatives. Examplesare the joint participation to trade fairs inBlumenau and the creation of a cluster catalogin Aguascalientes, with some joint marketinginitiatives by the local business association.

6. CONCLUDING REMARKS:CLUSTERS, VALUE CHAINS,

AND SECTOR-SPECIFICUPGRADING PATTERNS

Clustering and participating in a (global) va-lue chain are increasingly considered by devel-opment scholars and policymakers as possiblestrategies to enhance enterprise competitivenessin international markets. In this paper, we showand support with novel empirical evidence onLatin America, that what really matters is themode of organization of interfirm linkagesand the governance of value chains. These differand have different implications for process,product, and functional upgrading, in differentgroups of sectors. Thus, the degree of cumula-tiveness of knowledge, together with the degreeof appropriability, codification, and complexityof the knowledge base influence the capacityand way firms upgrade.A central and novel conclusion of this paper

is that collective efficiency makes a differenceand affects enterprise upgrading, but the impactis different, and follows different routes, in dif-ferent groups of sectors. However, this is notthe only thing that matters, as the mode of gov-ernance of the value chain in which firms par-ticipate affects the scope and extent of localfirms’ upgrading as well as how upgrading ispursued. More specifically, in quasi-hierarchi-cal value chains, the pressure to comply withthe standards imposed by the chains’ leaders of-ten enhances product and process upgrading,but functional upgrading is almost alwaysinhibited. But if this is a common resultthroughout all sectors, the way of pursuingproduct and process upgrading changes. In tra-ditional industries, buyers directly facilitate theprocess, in NR-based clusters, a crucial role isplayed by collective initiatives, while in COPS,firms find the resources needed to upgrade inthe market.In sum, firm-level strategies to pursue

upgrading substantially differ by groups of sec-tors: clustering and collective efficiency play akey role in some sectors but not in others,where the global logic of foreign buyers prevailsand firms need to learn how to cope with morecompetent (and often larger) players. Futureempirical research will need to build rigorousquantitative methods to address some of the is-sues raised in this paper and, most importantly,the implications for policy design and imple-mentation.


NOTES

1. Among the studies on this issue, see, for instance,

Schmitz (1995), Rabellotti (1997) and the two special

issues of World Development: Humphrey (1995) and

Nadvi and Schmitz (1999).

2. For a review of the empirical cases available on

Africa, see McCormick (1999) and on Latin America

Albaladejo (2001).

3. An important difference is also related to the fact

that in developing countries (specifically in Latin Amer-

ica), industrial clusters often include a heterogeneous set

of firms, which differ widely in terms of size. Unlike the

typical Marshallian industrial district, in the developing

world, clusters are populated by SMEs as well as large

firms (Rabellotti & Schmitz, 1999).

4. External economies can be defined as positive or

negative unpaid, outside of the market rules, as side

effects of the activity of one economic agent on other

agents.

5. Nadvi and Schmitz (1999) proposes the following

classification of joint actions: (i) Joint action within

vertical linkages including backward ties with suppliers

and subcontractors and forward ties with traders and

buyers; (ii) Joint action within bilateral horizontal

linkages between two or more local producers. This

can include joint marketing of products, joint purchase

of input, order sharing, common use of specialized

equipment, joint product development, and exchange of

know-how and market information; (iii) Joint action

within multilateral horizontal linkages among a large

number of local producers.

6. Markusen (1996) broadening the definition of an

industrial district discusses four types of districts. In the

‘‘satellite platform’’ type, consisting of a congregation of

branch facilities of externally based multiplant firms, she

acknowledges the importance of external linkages.

Guerrieri, Iammarino, and Pietrobelli (2001) and

Guerrieri and Pietrobelli (2004) further develop this

approach and apply it to clusters in Italy and Taiwan.

7. Within this context, innovation is clearly not defined

only as a breakthrough into a product or a process that

is new to the world. It is rather a story of marginal,

evolutionary improvements of products and processes

that are new to the firm, and that allow it to keep up with

an international (moving) standard. This involves a

shifting to activities, products, sectors which sustain

higher value added and enforce higher entry barriers.

8. The macroeconomic dimension of competitiveness is

often mixed with the microeconomic definition, embed-

ded in the competitiveness literature. This generated an

extensive debate among international trade economists

rejecting the notion of ‘‘competitiveness’’ as essentially

wrong and misleading, in comparison with the clear

concept of ‘‘comparative advantage’’ (Krugman, 1996).

Following the latter concept, all economies benefit from

any international specialization, provided that it is

consistent with their pattern of comparative advantage.

However, insofar as we admit the possibility of interfirm

(intrasector) differentials (for example, related to market

imperfections, information asymmetries, firm-specific

learning, and capabilities) that are ruled out by the

(macro) theories of comparative advantage, competi-

tiveness becomes a meaningful, and indeed relevant

concept (Lall, 2001). Further, the latter approach allows

consideration of ‘‘dynamic’’ comparative advantage,

that is, acquired through the purposeful efforts of

enterprises, and in sectors different from those enjoying

static comparative advantage (Pietrobelli, 1997). There-

fore, the present discussion of alternative ‘‘roads’’ to

competitiveness refers to the macroeconomic implica-

tions of enterprise-level strategies. From the point of

view of the individual enterprise, it could be (statically)

optimal to become competitive by squeezing costs

(including labor costs), but this would not be desirable

(i.e., high road), from the national point of view of the

country (or the region/cluster).

9. In order to observe the variety of innovative

processes across sectors, Nelson and Winter (1977,

1982) seminally introduced the notion of ‘‘technological

regime,’’ which they broadly define as a technological

condition that defines the boundaries and the direction

of the innovative and problem-solving activities of

technicians (also see Dosi, 1982, 1988). More recently,

other authors have attempted to differentiate technolog-

ical regimes on the basis of the combination of concepts

such as technological opportunity, appropriability of

knowledge, cumulativeness of learning, and nature of the

knowledge base (Breschi, Malerba, & Orsenigo, 2000;

Malerba & Orsenigo, 1993).

10. The properties of the knowledge base are tied to the

nature of knowledge and its degree of specificity,

tacitness, complexity, and independence (Breschi et al.,

2000).

11. Starting from seminal contribution of Pavitt (1984),

different attempts have been made to identify and

understand patterns of innovation (Marsili & Versp-

agen, 2001), and a number of different studies have


adopted and refined the taxonomy to analyze the Latin

American context (e.g., ECLAC, 1996; Ferraz, Kupfer,

& Haguenaer, 1996; Guerrieri, 1994).

12. University–Industry linkages have been historically

very poor in Latin America (Plonski, 1993). During the

Import Substitution period, there was little interest to

cooperate because protected market conditions did not

encourage firms to innovate. At the same time, univer-

sities had little incentives to transfer technologies to

business because research was mainly financed by the

Government. Since the 1990s, the situation has shown

signs of change, with some new policies specifically

focusing on university–industry linkages.

13. The risk of ‘‘freezing’’ a classification that may be

outdated by changes in technology over the years has

been acknowledged by several authors (Freeman, 1994);

to this aim, we have adapted the taxonomy to fit our

empirical case studies.

14. On this see Pray and Umali-Deininger (1998) and

Echevarria et al. (1996).

15. In this study, the definition of COPs does not

coincide entirely with that given by Hobday for Complex

Products Systems (1998). He distinguishes COPs from

mass-market, commodity type industries. The former—

which includes telecommunications exchanges, flight

simulators, aircraft engines, mobile phone network

equipment, etc.—would be characterized by high com-

ponent customization, by a hierarchical architecture and

by small batch production. The latter—which includes

cars, semiconductors, and consumer electronics—is

instead characterized by a higher degree of interface

and component standardization (modularity) (Ulrich,

1995) which allow for mass production. In the present

work, consistent with Bell and Pavitt (1993), the

definition given to COPs will include both the above-

mentioned industries, although the former is rarely

encountered in Latin America.

16. For details, see Pietrobelli and Rabellotti (2004).

17. As the definition of SMEs varies greatly across the

different countries of the region and firm size also

depends on the sector, we use the concept in a rather

loose way to refer to the majority of domestic firms.

18. For a list of all case studies, see Appendix A.

19. The indexes of external economies and joint action

are computed by summing up the figures obtained in

each component. Therefore, the index of collective

efficiency is the simple average of the two.

20. Specialized suppliers are not mentioned since none

of the cases analyzed forms part of a quasi-hierarchical

value chain.

21. Most of the local small growers had never previ-

ously worked with irrigated agriculture. Thus, they first

produced a combination of annual crops, including

beans, corns, and melons, followed by widespread

adoption of industrial tomatoes, and subsequently

higher-value fruit crops, including mangoes and grapes.

The transition from phase to phase involved a combi-

nation of conventional and more innovative support

policies to help growers in each, consecutively more

difficult, phase (Gomes, 2003).

REFERENCES

Albaladejo, M. (2001). The determinants of competi-tiveness in SME clusters: Evidence and policies forLatin America. In H. Katrack & R. Strange (Eds.),Small-scale enterprises in developing and transitionaleconomies. London: MacMillan.

Albornoz, F., Milesi, D., & Yoguel, G. (2002). NewEconomy in Old Sectors: some issues coming fromtwo production networks in Argentine. Paper Pre-sented at the DRUID summer conference 2002.<http://www.druid.dk>.

Alonso, J., Carrillo, J., & Contreras, O. (2000). Tray-ectorias tecnologicas en empresas maquiladoras asi-aticas y americanas en Mexico. Serie DesarrolloProductivo, 72, CEPAL, Naciones Unidas: Santiago.

Archibugi, D., & Pietrobelli, C. (2003). The globaliza-tion of technology and its implications for develop-ing countries. Windows of opportunity or further

burden? Technological Forecasting and SocialChange, 70, 861–883.

Arocena, R., & Sutz, J. (2001). Changing knowledgeproduction and Latin American universities. Re-search Policy, 30(8), 1221–1234.

Artola, N., & Parrilli, D. (2003). In C. Pietrobelli, &R.Rabellotti (Eds.), El despegue del cluster deproductos lacteos de Boaco y Chontales,Nicaragua.

Bair, J., & Gereffi, G. (2001). Local clusters in globalchains: The causes and consequences of exportdynamism in Torreon’s blue jeans industry. WorldDevelopment, 29(11), 1885–1903.

Bazan, L., & Navas-Aleman, L. (2004). The Under-ground Revolution in the Sinos Valley: A compar-ison of Upgrading in global and national value chain,in Schmitz (2004).

http://www.druid.dk


Becattini, G. (1987). Mercato e forze locali: Il distrettoindustriale. Bologna: Il Mulino.

Bell, M., & Pavitt, K. (1993). Technological accumula-tion and industrial growth: contrast between devel-oped and developing countries. Industrial andCorporate Change, 2(2), 157–211.

Bercovich, N., & Swanke, C. (2003). Cooperacao ecompetitividade na industria de software de Blume-nau. WP. 138, Serie Desarrollo Productivo, CEPAL/United Nations: Santiago de Chile.

Bernardes, R., & Pinho, M. (2002). Aglomeracao eaprendizado na rede de fornecedores locais daEmbraer. Mimeo. <http://www.ie.ufrj.br/redesist>.

Bortagaray, I., & Tiffin, S. (2000). Innovation clusters inLatin America. Paper presented at 4th internationalconference on technology policy and innovation,Curitiba, Brazil, August 28–31.

Breschi, S., Malerba, F., & Orsenigo, L. (2000). Tech-nological regimes and the schumpeterian patterns ofinnovation. The Economic Journal, 110, 388–410.

Buitelaar, R. M., Padilla, R., & Urrutia, R. (1999).Industria Maquiladora y Cambio Tecnico. Revista dela Cepal, 67, Abril, CEPAL. Naciones Unidas:Santiago.

Calandro, M. L., & Campos, H. S. (2002). O setor deautopecas de Caixas do Sul e Regiao: diagnosticopara a implementacao de politica de apoio aodesenvolvimento de SLPs. In C. C. Chiappino(Ed.), Programa de Apoio aos Sistemas Locais deProdu cao: a constru cao de uma politica publica doRS. Porto Alegre: Fundacao de Economia e Estat-istica.

Campos, R. R., Nicolau, J. A., & Ferraz Cario, S. A.(1998). Sistemas locais de inovacao: um estudopreliminar de casos selecionados ni estado de SantaCatarina. NT 10. <http://www.ie.ufrj.br/redesist>.

Campos, R. R., Cario, S., & Nicolau, J. (2000). Arranjoproductivo textil-vestuario do Vale de Itajai, SC. NT20. <http://www.ie.ufrj.br/redesist>.

Carrillo, J., & Hualde, A. (2000). Existe un cluster en lamaquiladora electronica en Tijuana. In J. Carrillo(Ed.), Aglomeraciones Locales o Clusters Globales?Evolucion Empresarial e Institucional en el Nortede Mexico (pp. 99–139). Fudacion Ebert and ElColegio de la Frontera Norte, Tijuana: UniversidadAutonoma de Ciudad Juarez.

Carrillo, J., & Lara, A. (2004). Maquiladoras de cuartageneracion y coordinacion centralizada. EstudiosSociologicos, XXII(66).

Carrillo, J., Mortimore, M., & Estrada, J. A. (1998). Elimpacto de las empresas transnacionales en lareesreucturacion industrial de Mexico. El caso delas Industrias de Partes para Vehiculos y Televisores.Serie Desarrollo Productivo, n. 50, CEPAL.

Cassiolato, J., Villaschi, A., & Lastres, H. (2003). In C.Pietrobelli, & R. Rabellotti (Eds.), Local productiveand innovative systems in Brazil: A policy perspec-tive from a study of the metal-mechanics system inEspırito Santo.

Cimoli, M., & Katz, J., (2002). Structural reforms,technological gaps and economic development. A

Latin American perspective. Serie Desarrollo Pro-ductivo, 129, CEPAL, Santiago de Chile.

Crocco, M., & Horacio, F. (2001). Industrializacaodescentralizada: Sistemas Industriais Locais. OArranjo Produtivo Moveleiro de Uba. NT 38.<http://www.ie.ufrj.br/redesist>.

De Souza, M. C., & Garcia, R. (1998). O arranjoprodutivo de industrias de alta tecnologia da regiaode Campinas—Estado de Sao Paulo-Brazil. NT 27/99. <http://www.ie.ufrj.br/redesist>.

Dosi, G. (1982). Technological paradigms and techno-logical trajectories. Research Policy, 11, 147–162.

Dosi, G. (1988). Sources, procedures. and microeco-nomic effects of innovation. Journal of EconomicLiterature, XXVI, 1120–1171.

Dussel, E. (1999). La subcontratacion como proceso deaprendizaje: el caso de la electronica en Jalisco(Mexico) en la decada de los noventa. Red dereestructuracion y competitividad, ECLAC, UnitedNations: Santiago, Chile.

Dutrenit, G., Vera-Cruz, A. O., & Gil, J. L. (2002).Desafios y oportunidades de las Pymes para suintegracion a la red de proveedores: el caso de lamaquila automotriz en cdad Juarez. <http://www.ie.ufrj.br/redesist>.

Echevarria, R. G., Trigo, E. J., & Byerlee, D. (1996).Institutional change and effective financing of agri-coltural research in Latin America. World BankPapers, N. 330, Washington, DC.

ECLAC (1996). Panorama de la insercion internacionalde America Latina y el Caribe, Edicion 1996 (lc/g.1941). CEPAL, Naciones Unidas: Santiago.

Ferraz, J., Kupfer, D., & Haguenaer, L. (1996). ElDesafıo Competitivo para la Industria Brasilena.Revista de la CEPAL, 58 (LC/G.1916-P).

Freeman, C. (1994). The economics of technical change.Cambridge Journal of Economics, 18, 463–514.

Garcia, R., & Roselino, J. E. (2002). Critical Evaluationof the results of the �Informatics Law’ and its reflexeson the electronic complex. Paper presented at the 6thEUNIP Conference, Turku, Finland, 5–7 December.

Gerber, J., & Carrillo, J. (2002). Are Baja California’sMaquiladora Plants Competitive? Paper Presented atSan Diego Dialogue Fronterizo, The Future ofManufacturing un Baja California: The Electronicsand Auto Part Sectors, July 18.

Gereffi, G. (1994). The organization of buyer-drivenglobal commodity chains: How, US retailers shapeoverseas production networks. In G. Gereffi & M.Korzeniewicz (Eds.), Commodity chains and globalcapitalism. London: Praeger.

Gereffi, G. (1999). International trade and industrialupgrading in the apparel commodity chain. Journalof International Economics, 48, 37–70.

Gereffi, G., & Kaplinsky, R. (2001). The value of valuechains. Special issue of IDS Bulletin, Vol. 32.

Giuliani, E. (2002). Beyond static comparative advan-tage in wine production: The case of the ColchaguaValley, Chile. Mimeo.

Giuliani, E. (2003). Knowledge in the air and its unevendistribution. A story of a Chilean Wine Cluster.

http://www.ie.ufrj.br/redesist








Paper Presented at the Druid Winter Conference,Denmark.

Gomes, R. (2003). In C. Pietrobelli, & R. Rabellotti(Eds.), Upgrading without exclusion: Lessons fromSMEs in fresh fruit clusters in Brazil.

Guerrieri, P. (1994). International competitiveness, tradeintegration and technological interdependence. InBradford, Jr. & I. Colin (Eds.), The new paradigm ofsystemic competitiveness: Toward more integratedpolicies in Latin America. Paris: OECD.

Guerrieri, P., & Pietrobelli, C. (2004). Industrial dis-tricts’ evolution and technological regimes: Italy andTaiwan. Technovation, 24(11), 899–914.

Guerrieri, P., Iammarino, S., & Pietrobelli, C. (2001).The global challenge to industrial districts: SMEs inItaly and Taiwan, Cheltenham, UK and Lyme, US:Edward ELGAR (paperback in 2003).

Henderson, R. M., & Clark, K. B. (1990). Architecturalinnovation: The reconfiguration of existing producttechnologies and the failure of established firms.Administrative Science Quarterly, 35, 9–30.

Hobday, M. (1998). Product complexity, innovation andindustrial organization. Research Policy, 26, 689–710.

Humphrey, J. (Ed.) (1995). Industrial organization andmanufacturing competitiveness in developing coun-tries. Special Issue of World Development, 23(1), 1–7.

Humphrey, J., & Schmitz, H. (2000) Governance andupgrading: Linking industrial cluster and globalvalue chain research. IDS Working Paper, No. 120,Institute of Development Studies, University ofSussex, Brighton.

Humphrey, J., & Schmitz,H. (2002a).Howdoes insertionin global value chains affect upgrading industrialclusters? Regional Studies, 36(9), 1017–1027.

Humphrey, J., & Schmitz, H. (2002b). Developingcountry firms in the world economy: Governanceand upgrading in global value chains. INEF Report,No. 61, University of Duisburg, Duisburg.

Kaplinsky, R. (2001). Learning networks in the SouthAfrican auto components industry. Innovation News.

Kaplinsky, R., & Readman, J. (2001). How can SMEproducers serve global markets and sustain incomegrowth? Mimeo, University of Brighton and Univer-sity of Sussex, Brighton. <http://www.ids.ac.uk/ids/global/valchn.html>.

Katz, J. (2001). Structural reforms and technologicalbehaviour. The sources and nature of technologicalchange in Latin America in the 1990s. ResearchPolicy, 30, 1–19.

Krugman, P. (1996). Making sense of the competitivedebate. Oxford Review of Economic Policy, 12(3),17–25.

Lall, S. (2001). Competitiveness indices and developingcountries: An economic evaluation of the globalcompetitiveness report. World Development, 29(9),1501–1525.

Leite, M. de Paula (2002). The struggle to developregional industrial policy: The role of the plastics andauto sectors in the Regional Chamber of ABC, SaoPaulo. IDS Working Paper No. 154, Institute ofDeveloping Studies, Brighton, UK. <http://www.ids.ac.uk>.

Lemos, M. B., Diniz, C., B. Teixeira dos Santos, F.,Crocco, M.A., Camargo, O., (2000). O ArranjoProdutivo da Rede Fiat de Fornecedores, NT 17,<http://www.ie.ufrj.br/redesist>.

Lemos, C., & Palhano, A. (2000). Arranjo ProdutivoCoureiro-Calcadista de Campina Grande/PB. NT 22.<http://www.ie.ufrj.br/redesist>.

Maggi, C. (2003). In C. Pietrobelli, & R. Rabellotti(Eds.), El cluster del cultivo y procesamiento delsalmon en la region sur-austral de Chile.

Malerba, F. (Ed.). (2000). Economia dell’Innovazione.Roma: Carocci Editore.

Malerba, F., & Orsenigo, L. (1993). Technologicalregimes and firm behaviour. Industrial and CorporateChange, 2(1), 74–89.

Markusen, A. (1996). Sticky places in slippery space: Atypology of Industrial Districts. Economic Geogra-phy, 72, 293–313.

Marques, R. A. (forthcoming). Evolution of the civilaircraft manufacturing system of innovation: A casestudy in Brazil. In S. Mani, & Henny Romijn (Eds.),Innovation, learning, and technological dynamism ofdeveloping countries (pp. 77–106). Tokyo: UnitedNations University Press.

Marshall, A. (1920). Principles of economics (8th ed.).London: MacMillan (1st ed. 1890).

Marsili, O., & Verspagen, B. (2001). Technologicalregimes and innovation: Looking for regularities inDutch manufacturing. No. 150, DRUID’s Nelson andWinter Conference.

McCormick, D. (1999). African enterprise clusters andindustrialization: Theory and reality. World Devel-opment, 27(9), 1531–1551.

Meyer-Stamer, J. (1998a). Avoiding collective efficiency.Growth and crises in the furniture cluster in SaoBento do Sul (Santa Catarina, Brazil). <http://www.meyer-stamer.de/1998/sbs.moveis.htm>.

Meyer-Stamer, J. (1998b). Towards knowledge-drivendevelopment? Upgrading to face the challenges of anopen economy: Experience from industrial clusters inSanta Catarina, Brazil. Paper presented for theconference on globalisation and industrial competitive-ness in Brazil, Oxford, June 11.

Meyer-Stamer, J., Maggi, C., & Siebel, S. (2001).Improving upon nature: Creating comparativeadvantage in tile clusters in Italy, Spain and Brazil.INEF Report, No. 54, University of Duisburg,Duisburg.

Millan, F. (2002). El conglomerado del azucar del valledel Cauca: cien anos de construccion social. InCEPAL, Aglomeraciones agroindustriales en Ame-rica latina, CEPAL, Naciones Unidas: Santiago.

Nadvi, K. & Schmitz, H. (Eds.) (1999). Industrialclusters in developing countries. Special issue ofWorld Development 27(9).

Nelson, R., & Winter, S. (1977). In search of a usefultheory of innovation. Research Policy, 6, 36–76.

Nelson, R., & Winter, S. (1982). An evolutionary theoryof economic change. Harvard University Press.

Pavitt, K. (1984). Sectoral patterns of technical change:Towards a taxonomy and a theory. Research Policy,13, 343–373.

http://www.ids.ac.uk/ids/global/valchn.html

http://www.ids.ac.uk/ids/global/valchn.html

http://www.ids.ac.uk

http://www.ids.ac.uk



http://www.meyer-stamer.de/1998/sbs.moveis.htm

http://www.meyer-stamer.de/1998/sbs.moveis.htm


Pietrobelli, C. (1997). On the theory of technologicalcapabilities and developing countries’ dynamic com-parative advantage in manufactures. Rivista Intern-azionale di Scienze Economiche e Commerciali,XLIV(2), June.

Pietrobelli, C. (1998). Industry, competitiveness andtechnological capabilities in Chile. A new tiger fromLatin America? London and New York: MacMillanand St. Martin’s.

Pietrobelli, C., & Olarte, B. T. (2002). Enterprise clustersand Industrial Districts in Colombia’s FashionSector. European Planning Studies, 10(5), 541–562.

Pietrobelli, C., & Rabellotti, R. (2004). Upgrading inclusters and value chains in Latin America: The roleof policies. In Sustainable Development DepartmentBest Practices Series. Washington, DC: Inter Amer-ican Development Bank.

Plonski, A. G. (Ed.) (1993). Cooperacion Empresa-Universidad en Iberoamerica, Programa CYTED,Sao Paulo.

Polanyi, M. (1967). The tacit dimension. Garden City,NY: Doubleday-Anchor.

Porter, M. (1990). The competitive advantage of nations.London and Basingstoke: MacMillan.

Pray, C. E, & Umali-Deininger, D. (1998). The privatesector in agricultural research systems: Will it fill thegap? World Development, 26(6), 1127–1148.

Quadros, R. (2002). Global quality standards, chaingovernance and the technological upgrading ofBrazilian auto-components producers. IDS WorkingPaper, No. 156.

Rabellotti, R. (1997). External economies and coopera-tion in industrial districts: A comparison of Italy andMexico. London and Basingstoke: MacMillan.

Rabellotti, R. (1999). Recovery of a Mexican cluster:Devaluation bonanza or collective efficiency? WorldDevelopment, 27(9), 1571–1585.

Rabellotti, R. (2004). In H. Schmitz (Ed.), The effect ofglobalisation on industrial districts in Italy: The caseof Brenta.

Rabellotti, R., & Schmitz, H. (1999). The internalheterogeneity in industrial districts in Italy, Braziland Mexico. Regional Studies, 33(2), 97–108.

Ruiz Duran, C. (2003). In C. Pietrobelli, & R. Rabellotti(Eds.), Cadenas de Valor y Clusters del Software enMexico.

Santos, F., Crocco, M., & Lemos, M. B. (2002). AsMPME em Espacos Industriasi perifericos: os casosde Nova Serrana e da Rede de Fornecedores Fiat.<http://www.ie.ufrj.br/redesist>.

Schmitz, H. (1995). Collective efficiency: Growth pathfor small-scale industry. Journal of DevelopmentStudies, 31(4), 529–566.

Schmitz, H. (1999a). Increasing returns and collectiveefficiency. Cambridge Journal of Economics, 23(4),465–483.

Schmitz, H. (1999b). Global competition and local co-operation: Success and failure in the Sinos Valley,Brazil. World Development, 27(9), 1627–1650.

Schmitz, H. (Ed.) (2004). Local enterprises in the globaleconomy: Issues of governance and upgrading. Ed-ward Elgar.

Torres-Zorrilla, J. (2000). Una estrategia de desarrollobasada en recursus naturales: analisis cluster delcompleto de cobre de la Southern-Peru, SerieDesarrollo Productivo, n. 70, CEPAL/United Na-tions: Santiago de Chile.

Torres-Zorrilla, J. (2001). El completo de cobre de laSouthern Peru. In R. Buitelaar (Ed.), Aglomeracionesminerai y desarrollo local en America Latina. CE-PAL-Alfaomega.

Torrisi, S. (2003). Imprenditorialita, nuovi modelli dibusiness e distretti tecnologici: un confronto traIndia ed Irlanda. In F. Cesaroni & A. Piccaluga(Eds.), Distretti industriali e distretti tecnologici.Milano: Franco Angeli.

Ulrich, K. (1995). The role of product architecture in themanufacturing firm. Research Policy, 24, 419–440.

Vargas, M. A. (2000). Arranjo productivo coureiro-calcadista do Vale dos Sinos. NT 21, IE/UFRJ.<http://www.ie.ufrj.br/redesist>.

Vargas, M. A. (2001a). Local systems of innovation indeveloping countries: A study of technologicallearning in local productive arrangements in Brazil.Paper presented at the DRUID Winter Conference,Aalborg, January 16–18.

Vargas, M. A. (2001b). Forms of governance, learningmechanisms and upgrading strategies in the TobaccoCluster in Rio Pardo Valley-Brazil. IDS WorkingPaper, 125, Institute of Development Studies, Uni-versity of Sussex, Brighton.

Vargas, M. A., & Alevi, R. M. (2000). Competitividade,capacitacao tecnologica e inovacao no arranjomoveleiro da Serra Gaucha. NT 39. <http://www.ie.ufrj.br/redesist>.

Vargas, L., & Lindegaard, K. (2002). New economiesand innovation for developing countries. The case ofintel in Costa Rica. Paper presented at the DRUIDsummer conference on industrial dynamics of the newand old economy, who embraces whom? Copenhagen,June 6–8.

Villaschi, F. V., & Bueno, F. O. (2000). Elementosdinamicos do arranjo productivo Madeira/Moveisno Nordeste de Capaixaba, Redesist. NT 24. <http://www.ie.ufrj.br/redesist>.

Villaschi, A. F., & de Souza Sabadini, M. (2000).Arranjo Produtivo Ornamentais (marmore, granito)no Estado do Espirito Santo. NT 15, IE/UFRJ.<http://www.ie.ufrj.br/redesist>.

Visser, E.-J. (1999). A comparison of clustered anddispersed firms in the small-scale clothing industry ofLima. World Development, 27(9), 1553–1570.

Von Hippel, E. (1987). Cooperation between rivals:Informal know-how trading. Research Policy, 16,291–302.

Wood, A. (2001). Value chains: an economist’s perspec-tive. IDS Bulletin, special issue: The Value of ValueChains, 32(3), 41–45.

Wood, A., & Berge, K. (1997). Exporting manufactures:Human resources, natural resources and trade policy.Journal of Development Studies, 34(1), 35–59.

Zepeda, E. (2003). In C. Pietrobelli, & R. Rabellotti(Eds.) Segusino: Auge y Caida de la Exportacion deMuebles.








APPENDIX A. LIST OF CASE STUDIES

Case study Country Source

Traditional manufacturing clustersFootwear, Sinos Valley Brazil Bazan and Navas-Aleman (2004),

Vargas (2000), Schmitz (1999b, 1995)Footwear, Guadalajara Mexico Rabellotti (1997, 1999)Footwear, Leon Mexico Rabellotti (1997, 1999)Footwear, Campina Grande Brazil Lemos and Palhano (2000)Textiles, Coahuila Mexico Bair and Gereffi (2001)Textiles, Medellin Colombia Pietrobelli and Olarte (2002)Apparel, Bucaramanga Colombia Pietrobelli and Olarte (2002)Textiles, Itaji Brazil Campos et al. (2000)Apparel, Gamarra Peru Visser (1999)Furniture, Serra Gaucha Brazil Vargas and Alevi (2000),

Meyer-Stamer (1998a),Furniture, Espirito Santo Brazil Villaschi and Bueno (2000)Furniture, Uba Brazil Crocco and Horacio (2001),Furniture, Segusino-Chipilo Mexico Original field study (Zepeda, 2003)Tiles, Santa Catarina Brazil Meyer-Stamer, Maggi, and Siebel (2001),

Meyer-Stamer (1998a, 1998b),Campos, Nicolau,and Ferraz Cario (1998)

Natural resource-based clustersTobacco, Rio Pardo Brazil Vargas (2001a, 2001b)Wine, Colchagua Chile Giuliani (2002, 2003)Wine, Serra Gaucha Brazil Vargas (2001a)Sugar, Valle del Cauca Colombia Millan (2002)Marble, Espirito Santo Brazil Villaschi and de Souza Sabadini (2000)Copper, Cuajone-Toquepala Peru Torres-Zorrilla (2000, 2001)Salmon, Region Austral Chile Original field study (Maggi, 2003)Milk, Boaco, Chontales Nicaragua Original field study (Artola and

Parrilli, 2003)Mangoes & grapes, Petrolina-Juazeiro Brazil Original field study (Gomes, 2003)Melons, Rio Grande do Norte Brazil Original field study (Gomes, 2003)Apples, Santa Catarina Brazil Original field study (Gomes, 2003)

Complex products’ industriesAircraft, SJC, Sao Paolo Brazil Bernardes and Pinho (2002),

Marques (forthcoming, Chapt. 4)Automotive, Nova Serrana Brazil Lemos et al. (2000), Santos et al. (2002)Metalworking, Espirito Santo Brazil Original field study Cassiolato, Villaschi,

and Lastres (2003)Automotive, Caixa do Sul, RGS Brazil Calandro and Campos (2002)Automotive, Juarez Mexico Dutrenit et al. (2002), Carrillo and

Lara (2004)Audio-visual equip., Baja California Mexico Gerber and Carrillo (2002), Alonso,

Carrillo, and Contreras (2000), Buitelaar,Padilla, and Urrutia (1999),Carrillo, Mortimore, and Estrada (1998),Carrillo and Hualde (2000)


APPENDIX A—continued

Case study Country Source

High Tech., Campina-Sao Paolo Brazil Garcia and Roselino (2002), De Souzaand Garcia (1998)

Intel ICT, San Jose Costa Rica Vargas and Lindegaard (2002),Bortagaray and Tiffin (2000)

Electronics, Jalisco Mexico Dussel (1999)

Specialized suppliers (software)Software, Joinville Brazil Bercovich and Swanke (2003)Software, D.F. Mexico Original field study (Ruiz Duran, 2003)Software, Guadalajara Mexico Original field study (Ruiz Duran, 2003)Software, Aguascaliente Mexico Original field study (Ruiz Duran, 2003)Software, Monterrey Mexico Original field study (Ruiz Duran, 2003)


upgradinginglobalvaluechains:...

Documents